Advisors Module

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Advisors Module

  1. 1. CURRICULUM FOR AMFI-MUTUAL FUND (ADVISORS) MODULE CHAPTER ONE CONCEPT AND ROLE OF MUTUAL FUNDS Section One The concept of a Mutual Fund; Advantages of Mutual Fund investing- Portfolio Diversification, Professional Management, Reduction of Risk, Transaction Costs and Taxes, Liquidity and Convenience. Section Two Evolution of Mutual Funds in India - Size of Industry, Growth Trends Role of Mutual Funds in Financial Markets Section Three Types of Funds  Open-end Funds/Closed-end Funds/Fixed Term Plans, Load Funds/No Load Funds, Tax Exempt/Non Tax Exempt Funds, Exchange Traded Funds, Fund of Funds  Money Market/Liquid Funds, Equity Funds, Debt Funds, Hybrid Funds, Commodity Funds, Real Estate Funds, Fund of Funds. Equity Funds- Aggressive Growth Funds, Small Cap Funds, Growth Funds, Growth and Income Funds, Value Funds, Equity Income Funds, Equity Linked Saving Schemes, Index Funds, Sector Funds, Specialised Funds, Offshore Funds, Option Income Funds Debt Funds- Bond Funds, Government Securities Funds, Specialised Bond Funds- Infrastructure/Real Estate, Mortgage Backed Securities Funds; High Yield Bond Funds; Offshore/Global Bond Funds/Country Funds, Assured Return Funds and Fixed Term Plans Hybrid Funds- Balanced Funds, Growth & Income Funds, Asset Allocation Funds Commodity Funds- Precious Metals/Gold Funds, Single versus Multi Commodity Funds
  2. 2. CHAPTER TWO FUND STRUCTURE AND CONSTITUENTS Section One Legal structure- Closed end and Open end Funds Asset Management Company, Trustees/Trust Companies Legal Status of Fund Sponsors Rights and Responsibilities of the AMC Directors, Trustees (SEBI, Companies Act) Fiduciary Nature of Relationship between Investor and Fund Legal Structure in the U. S. -Investment Companies, Management Companies and Advisors Legal Structure in the U. K.- Unit Trusts, Trustees Section Two Role, Functions, Rights and Responsibilities of Other Market Constituents Registrars, Bankers, Custodians, Depositories Marketing and Distribution Participants – Individual Distributors, Banks, NBFCs, Stock Brokers, Sub-Brokers Section Three Fund mergers and Scheme Takeovers
  3. 3. CHAPTER THREE LEGAL AND REGULATORY ENVIRONMENT Section One Role of regulators in India SEBI, RBI, Ministry of Finance, Stock Exchanges, Registrar of Companies, CLB, DCA Section Two Regulation versus Self Regulation - Role of AMFI, Investor Associations, Consumer Forums/Courts Section Three Rights and Obligations of the Investor
  4. 4. CHAPTER FOUR THE OFFER DOCUMENT Section One Introduction The Offer Document – What it is, Importance, Contents, Regulation and Investors Rights Section Two Contents of the Offer Document Standard Offer Document for Mutual Funds (SEBI Format) Summary Information Glossary of Defined Terms Risk Disclosures Legal and Regulatory Compliance Expenses Condensed Financial Information of Schemes Constitution of the Mutual Fund Investment Objectives and Policies Management of the Fund Offer Related Information Section Three ⇒ Key Information Memorandum
  5. 5. CHAPTER FIVE FUND DISTRIBUTION AND SALES PRACTICES Section One • The Challenge of Distributing Mutual Funds • Who Can Invest in MFs in India Section Two • Distribution channels  Role of Direct Marketing by Mutual Funds in India  Broker/Sub Broker Arrangements  Individual Agents, Brokers, Sub-Brokers, Banks, NBFCs Section Three • Sales Practices
  6. 6. CHAPTER SIX ACCOUNTING, VALUATION AND TAXATION In India, mutual funds are regulated by SEBI, which lays down the regulations for fund accounting and valuation of securities. The Income Tax Act, 1961 lays down the relevant tax provisions that govern mutual funds. This chapter outlines the major elements of mutual fund accounting, valuation and taxation norms as applicable to mutual funds in India. Section One • Accounting  SEBI Regulations on  NAV Computation  Pricing of Units  Fees and Expenses  Initial Issue Expenses  Disclosures and Reporting Requirements  Accounting Policies Section Two • Valuation  Marking to Market  Equity Valuation Norms - Listed, Unlisted, Untraded/Thinly traded  Debt Valuation Norms - Listed, Unlisted, Thinly traded/Illiquid  Money Market Instruments Valuation Norms  Non Performing Assets (NPA) Norms Section Three • Taxation  Taxation of Mutual Funds  Taxation of Income and Gains in the Hands of Investors
  7. 7. CHAPTER SEVEN INVESTOR SERVICES Section One • Applying for or account opening with Mutual Fund -  Application/Agreement, Provisions of the Agreement, Point of Receipt, Form of Payment, First Time versus Continuing Payments, Certificate vs. No Certificate  Registering a mutual fund Account - Individual, Joint, Corporate, Trusts, etc.  Repurchase and redemption options  Cut-off Times for Submissions of Requests, Historical vs. Prospective NAVs Section Two • Different investment plans and services by Mutual Funds-  Accumulation Plans, Systematic Investment Plans, Automatic Reinvestment Plans, Retirement Plans, Switching Within a Family of Funds, Voluntary Withdrawal Plans, Redeeming units  Services Performed by Mutual Funds- Nomination Facilities, Phone Transactions/Information, Check Writing, Pass Books, Periodic Statements and Tax Information - Statutory, Others  Loans Against Units
  8. 8. CHAPTER EIGHT INVESTMENT MANAGEMENT Section One • Equity portfolio management  How to identify which kind of Stocks to include  Review of the Indian Equity Market  Types of Equity Instruments  Equity Classes ♦ Based on Market Capitalisation ♦ Based on Anticipated Earnings  Approaches to Portfolio Management ♦ Passive: Index Funds ♦ Active: Growth and Value Investment Styles ♦ Role of Research in Equity Fund Management ♦ Successful Equity Portfolio Management ♦ Use of Equity Derivatives for Portfolio Risk Management  Organization Structure of Equity Funds Section Two • Debt Portfolio Management  Classification of Debt Securities  A Review of the Indian Debt Market  Instruments in the Indian Debt Market  Basic Characteristics of Money Market Securities  Basic characteristics of Debt Securities  Measures of Bond Yields- Current Yield, YTM, Yield Curve  Risks in Investing in Bonds ♦ Credit Risk- Yield Spreads and Credit Ratings ♦ Interest Rate Risk- Duration  Debt Investment Strategies  Interest Rates and Debt Portfolio Management  Use of derivatives for Debt Portfolio Management  Organization Structure of Debt Funds Section Three • SEBI Investment Guidelines and Restrictions on Investment Portfolios- Structure, Timing of Investments, Permissible Instruments
  9. 9. CHAPTER NINE MEASURING AND EVALUATING MUTUAL FUND PERFORMANCE When an investor entrusts his savings to a mutual fund, naturally he hopes to increase his wealth by seeing the value of his investments grow. Having understood the conceptual and operating aspects of mutual funds, it is important to analyze the issues involved in the evaluation of fund performance. Section One • Performance Measures-  Equity Funds  NAV Growth, Total Return; Total Return with Reinvestment at NAV, Annualised Returns and Distributions, Computing Total Return (Per Share Income and Expenses, Per Share Capital Changes, Ratios, Shares Outstanding), the Expense Ratio, Portfolio Turnover Rate, Fund Size, Transaction Costs, Cash Flow, Leverage  Debt Funds  Peer Group Comparisons, The Income Ratio, Industry Exposures and Concentrations, NPAs, besides NAV Growth, Total Return, Expense Ratio  Liquid Funds  Fund Yield, besides NAV Growth, Total Return, Expense Ratio  Differences between Active versus Passive Fund performance, Equity vs. Debt Fund Performance  Passive Funds Performance against Base Index, Tracking Error, Expenses  Performance Measurement- NAV change  Analyzing fund Management- Relative Importance of Factors: Total Return of Different Types of Funds Section Two • Concept of Benchmarking for Performance Evaluation  Performance Benchmarks in the Indian Context -  Active Equity Fund Performance against Market Indices as Benchmarks  Debt Funds- Interest Rates on Alternative Investments as Benchmarks, I-Bex Total Return Index, JPM T-Bill Index Post-Tax Returns on Bank Deposits versus Debt Funds  Liquid Funds- Short Term Government Instruments’ Interest Rates as Benchmarks, JPM T-Bill Index Section Three • Tracking a Fund’s Performance- Newspapers, Periodicals, Research Reports, Annual Reports, Prospectus, Reports from Tracking Agencies, Internet and Interpretation of Data
  10. 10. CHAPTER TEN HELPING INVESTORS WITH FINANCIAL PLANNING Section One • The Concept of Financial Planning for the Investor  Financial Planning – Definition and Scope  Need for Professional Financial Planning  Role of a Financial Planner  Need for a Fund Distributor to become a Financial Planner  Benefits of Financial Planning  Qualities of a Good Financial Planner  The Financial Planning Process  Common Mistakes in Financial Planning  The Investor/Client's Responsibilities  The Place of Mutual Funds in Financial Planning Section Two • The Basis of Financial Planning – Life Cycle Stages  Childhood  Young Unmarried  Young Married  Young Married with Children  Married with Older Children  Post-family/Pre-retirement  Retirement • The Basis of Financial Planning – Wealth Cycle Stages  The Accumulation Phase  The Transition Phase  The Distribution Phase  The Inter-Generation Transfer Stage  The Sudden Wealth Stage  Planning for Affluent Investors
  11. 11. CHAPTER ELEVEN RECOMMENDING FINANCIAL PLANNING STRATEGIES TO INVESTORS Section One  Financial Planning Strategies - Investing for the Long Term - Power of Compounding  Strategies to Maximise Returns on Investment - Buy and Hold, Rupee Cost Averaging, Value Averaging - Investing Early, Investing Regularly, Cashing Out Section Two  Asset Allocation - Meaning and Principles  Strategic and Tactical Asset Allocation  Fixed versus Flexible Asset Allocation
  12. 12. CHAPTER TWELVE SELECTING THE RIGHT INVESTMENT PRODUCTS FOR INVESTORS Once the investor has been helped with a suitable Financial Plan, a Strategy and an appropriate Asset Allocation, the advisor ought to review all investment options available to the investor including the mutual funds. In one of the previous chapters, we discussed the importance of benchmarking fund performance relative to other investment products available in the market. This chapter describes the financial products available to investors in India and compares their investment potential relative to mutual funds. Section One • Products available in India • Shares, Bonds and Debentures, Bank and Company Deposits, Small Savings Instruments, PPF, Insurance, Gold, Real Estate and Mutual Funds Section Two • Comparison based on Return, Safety, Liquidity, Convenience  Investing through MFs versus Other Investment Products  Comparison in terms of Investment objectives, Expected Returns and Potential Risks of Mutual Funds and Other Products  Investor Perspective: Comparison in terms of Investor Objectives/Expectations, Risk Tolerance and Investment Horizon  Direct Equity Investment versus Mutual Fund Investing  Bank Deposits versus Income and Debt Funds
  13. 13. CHAPTER THIRTEEN HELPING INVESTORS UNDERSTAND RISKS IN FUND INVESTING While reviewing mutual fund investing against other products, and while selecting the right funds, investors must be explained the risks that are inherent in fund investing and in different types of funds.. Helping investors understand these risks is a major responsibility of the advisor. Section One • Awareness of Risks in Mutual Fund Investing  Measures of Equity Fund Risks- Equity Fund Price Movements versus Market Index, Peer Group/Competitor Performance Comparison  Measures of Debt Fund Risks- Debt Fund Returns/Nominal and Real Interest Rates, Guaranteed Income or Assured Return Funds, Fund Volatility versus Index for Fixed Income Securities  Impact of Diversification on Fund Risk Profile  Measures of Fund Risk Level : Sharpe and Treynor Ratios  Attribution Analysis- Measuring Portfolio Manager’s Skills  Measurement of Risks Using the Prospectus, Annual and Quarterly Returns  Types of Risk faced by Funds/Investors - Credit Risk, Interest Rate Risk, Price Risk, Liquidity Risk; Company Risk, Sector Risk, Market Risk  Risk Measurement- Debt versus Equity not a Comparison- Debt is for the Risk Averse Investor  Risk-Return Relationship, Optimisation, and Optimal Risk Level for Varied Classes of Investors
  14. 14. CHAPTER FOURTEEN RECOMMENDING MODEL PORTFOLIOS AND SELECTING THE RIGHT FUNDS Once financial planning has been done, and the investment options reviewed, the financial planner needs to help the investor build a suitable portfolio of mutual funds and then select the right funds to attain the investment objectives of the investor. This chapter covers these important final steps in financial advisory activity. Section One • Developing a Model Portfolio  Developing an Investment Portfolio Suited to Investor Needs/Life Cycle Stages  Developing an Investment Portfolio Suited to Investor Needs/Wealth Cycle Stages  Investment Options- Equity Instruments, Fixed Income Securities, Quasi-Equity Instruments- Convertible Debentures/Bonds, Warrants, etc., Taxable and Tax Exempt Funds  Asset Allocation Section Two • Helping the investor choose a Fund based on Selection Criteria-  Objective, Yield, Load, Annual Total Return, Portfolio Diversification, Risk Level, Long Term Track Record, Services Provided and Management Expertise  Costs of Ownership- Management Fees, Share Transfer Agent Fees, Custodian Fees, Redemption Fees, Switching Fees, Maintenance Fees  Distribution Costs and Commissions Payable- Front End Loads, Ongoing Sales and Service Charges, Contingent Deferred Sales Charges, Other Fees  Agent’s commissions, Rebates to Investors, Advisory Fees  Impact of Age Profile of Investor on Fund Selection  Understanding the Investment Objective of a Mutual Fund Scheme  Appreciation of Capital Market Volatility  Reasons for Fluctuations in a Fund’s NAV • Selecting an Equity Fund, a debt Fund, a Balanced Fund and a Money Market Fund
  15. 15. Chapter Fifteen Business Ethics for Mutual Funds Section One – Understanding Business Ethics 1.1 What is Meant by Business Ethics? 1.2 What is the Need for Business Ethics? 1.3 Business Ethics in Practice : Examples 1.4 Objectives of Business Ethics 1.5 Some Key Terms of Business Ethics Section Two – Fund Regulators and Business Ethics 2.1 Business Ethics and Fund Regulation in India 2.1.1 Regulators’ Responsibilities 2.1.2 Regulatory Objectives 2.1.2.1 Fund Structure and Ethics – a Fiduciary Responsibility for Mutual Funds 2.1.2.2 Fund Governance 2.1.2.2.1 Regulatory Requirements 2.1.2.3 Exercise of Voting Rights by Funds 2.1.2.4 Fund Operations 2.1.2.5 Fund Publicity and Advertisements 2.1.3 Ethics related Regulations 2.1.3.1 Guidelines of Good Conduct for AMCs and TCs – Personal Trading 2.1.3.2 Regulations on Personal Trading 2.1.3.3 Regulations on Insider Trading 2.1.3.4 Regulations on Fund Advertisements 2.1.3.5 Compliance Officer 2.1.3.6 Board Review and Reporting to SEBI 2.1.3.7 Code of Conduct for Distributors 2.2 Business Ethics and Fund Regulation in the U.S. 2.2.1 Fund Governance 2.2.2 Investment Adviser Codes of Ethics 2.2.3 Ethical Issues and Responsible Investing 2.2.4 New Regulations and Fair Business Practices

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